50 / 30 /20 Budget


A popular rule of thumb to follow when budgeting for your family is the 50/30/20 rule.

The 50/30/20 budget separates your monthly after-tax income into necessities, wants, and savings:

  • 50% Necessities
  • 30% Wants
  • 20% Savings

This is a percentage-based approach to organizing your finances. 

If you’re in need of a roadmap for your personal or family finances, the 50/30/20 rule may be a good place to start. It’s a helpful way to provide structure for those new to budgeting, without being too rigid to keep at over time.

Is the 50/30/20 Budget Right for Me?

First and foremost, you need a plan for your finances. If you don’t currently have one, this is a safe place to start. The 50/30/20 rule has received an increasing amount of attention after Sen. Elizabeth Warren and her daughter Amelia enhanced its popularity in the book All Your Worth: The Ultimate Lifetime Money Plan. Why is the 50/30/20 budget advantageous?

  1. It helps you live. The 50/30/20 rule ensures you spend money on the right things – the stuff you need to live off of.
  2. There’s room for fun. Built into the rule is a bucket for “wants’” Meaning that you can enjoy – and set a limit to – spending on yourself each month. 
  3. You’re saving for the future. Budgeting to pay down debts and save for your future ensures there’s money for your tomorrow. 

Wondering how that shakes down for you exactly? Let’s look at an example. Say your monthly after-tax income is $3,000. 

First, calculate 50% of your monthly after-tax income: 

$3,000 x .50 (1 = 100%, so .5 is 50%) = $1,500.

Next, calculate 30% of your monthly after-tax income:

$3,000 x .3 (1 = 100%, so .3 is 30%) = $900

Last, calculate 20% of your monthly after-tax income:

$3,000 x .2 (1 = 100%, so .2 is 20%) = $600

And there you go! Your 50/30/20 budget breakdown would then look like this:

50% Necessities: $1,500

30% Wants: $900

20% Savings: $600

If your monthly after-tax income looks a little different, just go ahead repeat the same calculations above with your numbers. For convenience, however, we have a breakdown of additional examples below.

Monthly After-Tax Income50% Necessities30% Wants20% Savings

50% Necessities

Or, the things you need to live off of. That’s this category of your budget. It your major monthly expenses like housing, food, and transportation. It should also include your utilities, insurance, phone/internet, etc. 

One caution: be careful not to blur the lines between your wants and needs. That means things like streaming or subscription services may not be appropriate in this category. Yes, you may really need an evening with friends or family on the weekend. But it doesn’t mean you have to spend it at the movies or a restaurant, when you could enjoy entertainment or cook at home. You may also really need a vacation, but where you want to go will play a bigger role in determining which category of the budget your next trip falls into. 

The benefit to having a large bucket to meet your needs means that where you save in one area, you’ll have more to spend in the other.

30% Wants 

If you’re used to treating yourself, the 50/30/20 budget can be a good beginner budget. It’s useful to help you reel in expenses if you’re prone to spending more than 30% of your monthly after-tax income on personal wants. Setting a cap on your personal spend will help cut out superfluous expenditures that don’t add to your overall well being. It will also help you find happiness by focussing on the things you want and value most. 

Understand also that 30% is a fairly large portion of your monthly budget. Which means you have room to spend it in a few different areas. It also means that where you save in one area, you’ll have more to spend in the other. 

For example, let’s imagine your 30% bucket was divided into 3 smaller categories.

  1. Dine Out – 10%
  2. Hobbies / Entertainment – 10%
  3. Subscriptions / Streaming Services – 10%

If we carry forward our initial $3,000 monthly after-tax income example, that’d look like this:

30% Needs: $900 Total

$3,000 x .10 (.10 = 10%): $300 Per Category

$300 Dine Out 

$300  Hobbies / Entertainment 

$300 Subscriptions / Streaming Services

If this is your typical spend, but you want to save up for a vacation, what should you do? Assuming your vacation plan will cost $1,000, you could find a few different ways to save up the money. You could make all your meals and invite friends and family over for game night instead of eating out for two months – that’s $600 toward your vacation. You could also audit your existing subscriptions and whittle them down to the ones you actually use on a regular basis. If you ended up spending $50/month on these services instead and cancelled the rest, you’d have another $250 each month. And within two month’s time you’d be on vacation!

Capping your personal spending isn’t restricting, it helps you focus on what you value most. When you know what you want, you’ll find a way to get there. And you won’t need to break the bank along the way. 

20% Savings

If you have no debt, you can begin investing 20% of your monthly after-tax salary each month. At $600 a month (20% carried down from our initial example), you’d be saving $7,200 each year. If you invested the same amount each year for 6 years, with a 7% estimated rate of return, you’d have contributed $43,300 with an additional $11,960 in interest. That’s more than an extra year of savings without any work on your part! In 10 years, you’d have $99,753 And 36 years $1,073,768!

Got a big ticket item like a wedding or house you’re saving up for? Begin saving today so that when the time comes, you and your finances will be ready. If you’re in debt though, work to pay it down with your 20% each month. Your new budget will help you get on sound financial footing. So once you’ve got the hang of things, you can even scale back wants and increase your savings rate to 30% and beyond. Believe in freedom, not in debt. We believe in you. You can do this.

50/30/20 Budget Takeaways

The 50/30/20 budget is simple, easy to apply, and can be an early stepping stone to your financial goals. It can help you pay for what you need, spend on some things you really want, and help you on your way to becoming a millionaire

Remember that the 50/30/20 rule is a general rule of thumb. Once you begin saving 20% regularly, you can work to increase your savings to 30-40% while decreasing your personal spending to 20% or 10%. Doing so can help you find what really matters to you. Eventually, you’ll even learn new ways you can spend your money (see the 70/20/10 budget for guidance on giving away wealth to find happiness). And of course, you can even experiment with other budgeting options once you understand the basics about managing your finances.

Keep at it and you’ll be on your way up your financial mountain in no time.

Climb on, FinBase. 




John is a personal finance writer, editor, and a fellow FinBase climber. Tech worker by day, design owl by night, he is the co-founder and creator behind The Financial Basecamp.
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